EUR/USD recovers around 1.0700 although remains capped by the 50 DMA ahead of the NFP report

• EUR/USD is up around 0.5% on Thursday as US yields slide amid mixed US jobs data ahead of Friday’s NFP.
• The pair has bounced around 1.0700, although it remains capped below its 50 DMA.
• Dollar bulls could return if Friday’s US employment data reveals higher-than-expected wage growth.

The pair EUR/USD rallied on Thursday, although unable to break above the 1.0700 level or its 50 day moving average just above it at 1.0723, and has since pulled back to trade just below 1.0700. Nonetheless, the pair is still gaining 0.5% on the day as the US dollar weakens amid a pullback from weekly highs in US yields.

The dollar had received a boost on Wednesday after stronger-than-expected US manufacturing PMI figures for May, while a barrage of jobs data on Thursday (first-quarter unit labor cost, May’s ADP job change and weekly jobless claims) failed to elicit a similar reaction. This is perhaps not too surprising, as the official US labor market report for May is due out on Friday, dissuading forex market participants from making big bets on the dollar based on labor market considerations, for now.

The EUR/USD pair has traded back with very slight losses for the week, and continues to be supported by Eurozone inflation figures, which showed price pressures reaching all-time highs last month. The latest inflation data indicates that a 50 basis point rate hike by the ECB at its July meeting is on the cards, with some even betting that the ECB could break with its recent guidance and raise interest rates. interest rates even before the July meeting (ie this month).

The high inflation in the Eurozone, a very aggressive ECB and the growing sensation, since the April data for consumer price inflation (CPI) and the core consumer price index (PCE) in the US were published ., that inflation in the US could have peaked, which would reduce the pressure on the Federal Reserve to tighten interest rates in the second half of 2022 and in 2023, have been the key factors that have supported EUR/USD in recent weeks. Through Thursday, the pair was trading almost 3.5% above its mid-May lows around 1.0350.

However, there is a risk that Friday’s US jobs report will rekindle dollar strength, if it shows US wage growth picking up again. Labor market developments that increase the risks of high inflation becoming entrenched in the US (such as rapid wage growth) will encourage the Federal Reserve to take its foot off the monetary accelerator and hit the brakes at a faster pace. Quick. In this scenario, EUR/USD bears will be watching for a pullback towards the 21-DMA around 1.0600.

Technical levels